The Central Bank of the UAE (CBUAE) is reportedly operationalizing its domestic digital dirham central bank digital currency (CBDC). It is encouraging all UAE commercial banks and payments processors to participate in a pilot integration with the CBUAE digital dirham issuing node and has decreed digital dirham adoption by all UAE licensed financial institutions (LSIs) by 2026. In the immediate term, those LSIs are being encouraged to develop digital dirham use cases in the CBUAE sandbox.
Digital euro regulation: European Parliament vs. Commission
The European Parliament's draft digital euro regulation offers specific recommendations on how to modify the regulatory proposal released by the Commission in June 2023. As a next step, the Economic and Monetary Affairs Committee (ECON) will vote on the draft in the beginning of April. After that, there will be a plenary vote in the European Parliament expectedly end of April. The draft proposal suggests that digital euro payments should also be facilitated on permissionless distributed ledgers, and holding limits should be agreed upon between the bank and the user. https://www.europarl.europa.eu/doceo/document/ECON-PR-758954_EN.pdf
The need for rich data in a shared ledger paradigm
"Swift has a long history of working with the financial services community to solve challenges and facilitate industry-wide innovation. We continue to demonstrate this by participating in industry initiatives such as the RLN, and by driving activities such as our recent central bank digital currency (CBDC) sandbox and blockchain interoperability experiments."
Blockchain developer Gluwa is exploring the possibility of building a central bank digital currency (CBDC) for Liberia. The firm's CEO met with the President of Liberia to discuss enhancements to the country's financial infrastructure, but no mention was made of central bank engagement, so the latter's engagement in the project is unclear.
The e-krona PoC phase 4: offline payments with e-krona
Sveriges Riksbank published the fourth and final report on its e-krona proof-of-concept (PoC) work that focuses on offline payments ( the report calls it a "technical pilot" but a "pilot" involves real users transferring real central bank digital currency (CBDC) in limited ways). The solution reserves e-krona for offline use in a "shadow" wallet in the online system. The payment instrument in the form of a payment card records the shadow wallet's balance and subsequent offline transactions. The actual e-kronas issued by the Riksbank never leave the online system and only change hands when the payment instruments are synchronized. The report concludes that offline payments are viable, but "a secure and functional offline solution requires a lot of development work on technology, regulations and processes".
The People's Bank of China (PBOC) Digital Currency Research Institute published a digital yuan (eCNY) how-to guide for foreigners. That includes using the eCNY app or hardware wallets in the form of payment cards or wearables. The mobile app lets visitors sign up with just their mobile phone number and supports 210 countries so far. To top up, users either link a Visa or Mastercard or visit a bank or kiosk. https://mp.weixin.qq.com/s/YYK75SqEy01G_ekWLcNkkg
When It Comes To Digital Currency, Everything Old Is New Again
"I could imagine holding bank-issued stablecoins in my digital wallet, but I have a suspicion that in time most people will drift towards tokens backed by central bank reserves. In other words, in a world with a Digital Pound, it’s not clear why anyone would hold Barclays Bunce, CapOne Cabbage, Wells Wonga or Lloyds Lolly."
ECB establishes seven new digital euro rulebook workstreams
The European Central Bank (ECB) is establishing seven new workstreams to develop the various sections of the digital euro rulebook and has issued calls for candidates for each, inviting experts in payments infrastructure and architecture, technical specifications and scheme management to apply. Last year three workstreams were launched, covering the scheme’s compatibility with standards, as well as technical requirements, and identification and authentication. The workstreams will report to the Rulebook Development Group (RDG) that represents consumers, retailers, and intermediaries. Each applicant will need to be nominated by an RDG member.
CBDC governance: programmability, privacy and policies
Canada's Centre for International Governance Innovation (CIGI) Digital Policy Hub published a paper by Ori Freiman on central bank digital currency (CBDC) governance, focusing particularly on programmability and privacy/surveillance. Although programmable money and payments can support social policies, they also raise questions about the authorities’ influence and control, and how to ensure there is no abuse of power. Privacy is a significant CBDC design challenge because meeting financial integrity (e.g., AML/CFT) requirements while offering cash-like anonymity seems incompatible. Authorities’ access to citizens’ data could lead to state-level surveillance, threatening civil liberties and human rights. Even if safeguards are put in place, CBDC infrastructure could be changed and initial safeguards overridden, rendering this risk a time-consistency problem. Eleven policy recommendations are suggested on privacy and data rights, accessibility, public participation and oversight, prohibiting programmable money, legislation protecting cash and more.
"We present a scalable architecture for electronic retail payments via central bank digital currency and offer a solution to the perceived conflict between robust regulatory oversight and consumer affordances such as privacy and control. Our architecture combines existing work in payment systems and digital currency with a new approach to digital asset design for managing unforgeable, stateful, and oblivious assets without relying on either a central authority or a monolithic consensus system. Regulated financial institutions have a role in every transaction, and the consumer affordances are achieved through the use of non-custodial wallets that unlink the sender from the recipient in the transaction channel. This approach is fully compatible with the existing two-tiered banking system and can complement and extend the roles of existing money services businesses and asset custodians."
Retail CBDC: Motivations, Opportunities, and Mistakes
"An important motivating factor in the development of retail CBDC is the decline of the popularity of central bank money for retail purchases and the increasing use of digital money created by the private sector for such purposes. The debate about how retail CBDC would be designed and implemented has led to many proposals, which have sparked considerable debate about business models, regulatory frameworks, and the socio-technical role of money in general. Here, we present a critical analysis of the existing proposals. We examine their motivations and themes, as well as their underlying assumptions. We also offer a reflection of the opportunity that retail CBDC represents and suggest a way forward in furtherance of the public interest."
The European Central Bank (ECB) published the learning strategy and key performance indicators (KPIs) proposed for its exporatory work on new technologies for central bank money settlement of wholesale financial transactions. The work is focused on three interoperability-type solutions, (i) trigger (ii) TARGET Instant Payment System (TIPS) hash link, and (iii) full distributed ledger technology (DLT) interoperability. The first two solutions involve the market platform interoperating with the existing TIPs platform. Only the last one (full-DLT) involves what the rest of the world calls wholesale central bank digital currency (wCBDC), in which the payment instrument is DLT-based central bank money (CeBM).
How do privacy concerns impact actual CBDC adoption?
Quantitative Finance and Economics (QFE) published a paper that, based on a quantitative questionnaire among 682 Chinese citizens, explored the impact of privacy concerns on e-CNY central bank digital currency (CBDC) adoption. It found that several antecedents significantly influenced privacy concerns that negatively influenced e-CNY usage, particulary perceived vulnerability and self-efficacy concerns. Perceived vulnerability may arise from concerns related to the security of the technology, the potential misuse of personal information, and the risk of financial losses. Self-efficacy realtes to potential e-CNY user confidence that they can securely and manage associated privacy risks.
HKMA launches Phase 2 of the e-HKD Pilot Programme
The Hong Kong Monetary Authority (HKMA) launched phase 2 of the e-HKD pilot programme. Phase 1 was completed in October 2023 and had studied domestic retail use cases in various areas such as programmable payments, settlement of tokenized assets, and offline payments. Phase 2 will delve deeper into select pilots from phase 1 where an e-HKD could add unique value, such as programmability, tokenization and atomic settlement, as well as explore new use cases that have not been covered in the previous phase. Organizations interested in participating in phase 2 have been invited to submit applications by May 17, 2024.
ECB Executive pens November 2025 rollout for digital Euro CBDC
European Central Bank (ECB) Executive Board member Piero Cipollone gave a speech in which he outlined the fundamental design choices and rationale behind the digital euro project. The project is currently in the "preparation" phase in which the scheme rulebook is being finalized, service provider are being selected, deep dives are being conducted (including conducting further research on offline functions) and test and roll-out plans are being drafted. The preparation phase is expected to be complete by November 2025, at which point potential "roll-out" may happen if the legislative framework is adopted by the European Parliament. However, it's unclear what is meant by "rollout" since CBDC launches are typically preceded by pilots, a step the ECB would be unlikely to skip. https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp240313~f632c531ac.en.pdf
Technology providers in the payment sector: market and regulatory developments
Banca D'Italia published a paper on financial technology providers and their crucial role in enabling firms - even small ones - to become more efficient and keep pace with innovation. It draws attention to how interdependencies between such providers and financial entities may pose new systemic risks, deserving the attention of financial regulators and overseers. Although it doesn't cover central bank digital currency (CBDC) explicitly, all of the points it makes seem relevant to the role such technology providers play in CBDC launches and pilots.
Banco do Brasil selects G+D to test offline payments for CBDC
"Banco do Brasil is to work with German firm Giesecke+Devrient (G+D) to test offline payments as part of pilot trials of the Drex central banking digital currency (CBDC)". At this point you may be thinking that we're talking about the central bank, Banco Central do Brasil (BCB). However, Banco do Brasil is a commercial bank that purports to be part of the BCB's Drex pilot. It may be true that this offline payment test is done with the BCB's blessing, but the press release could make that clearer. https://www.bb.com.br/pbb/pagina-inicial/imprensa/n/67840/bb-e-gd-firmam-parceria-para-testar-pagamentos-offline-com-drex#/
EBA launches consultation on stablecoin redemption guidelines
The European Banking Authority (EBA) has initiated a consultation on the guidelines for the orderly redemption of asset-referenced or e-money tokens in the event that the issuer fails to fulfil its obligations under the Markets in Crypto assets Regulation (MiCAR). For example, the draft guideline calls for the clarification of the main principles governing the redemption and distribution plan, such as the equitable treatment of token holders, and describe the main steps for the orderly and timely implementation of the plan.
The Hong Kong Monetary Authority (HKMA) launched its stablecoin issuer sandbox. Tying in with the consultation on the legislative proposal for implementing the regulatory regime for stablecoin issuers, the HKMA wishes to leverage the sandbox arrangement to communicate supervisory expectations to parties interested in issuing fiat-referenced stablecoins in Hong Kong, as well as to obtain feedback from participants on the proposed regulatory requirements. The list of participants of the sandbox arrangement will be available on the HKMA website. https://www.hkma.gov.hk/eng/news-and-media/press-releases/2022/01/20220112-3/
The Bank of Israel (BoI) published a paper that examines architecture alternatives for implementing the two-tiered central bank digital currency (CBDC) business model. The paper focuses on the types of participants in the system, the functional distribution between the participants in providing an end-to-end solution, the distribution model to end users; and back-end layer—or system “engine”—managed by the central bank. It concludes that the optimal model is an indirect distribution model, in which the central bank distributes CBDC to the institutions that manage end user's accounts, and those will support distribution to the end users.
Powell says Fed not "remotely close" to a central bank digital currency
Chairman Jerome Powell, testifying before the Senate Banking Committee on March 7, 2024, said the U.S. Federal Reserve was "nowhere near" issuing a CBDC. He added that it has no interest in establishing accounts for individuals that would compete with the banking system, and it would not support any Fed monitoring of personal financial transactions.
Project Aurum 2.0: Improving privacy for retail CBDC payment
The BIS Innovation Hub and the Hong Kong Monetary Authority have launched the second phase of Project Aurum. Phase 1.0 tested the feasibility of a technological stack that integrates a wholesale interbank system and a retail e-wallet. Phase 2.0 will now focus on how to enhance privacy for retail central bank digital currencies (CBDC). It will explore several privacy-enhancing technologies, including pseudonymization and zero knowledge proofs, and test how increasing privacy affects the performance and compliance of a system.
HKMA launches wholesale CBDC project to support tokenization, tokenized deposits
The Hong Kong Monetary Authority (HKMA) launched Project Ensemble to test using wholesale central bank digital currency (CBDC) to settle tokenized assets with tokenized bank deposits. Use cases will include settling tokenized green bonds, carbon credits, aircraft instruments, electric vehicle charging stations, and electronic bills of lading. To help set industry standards, the HKMA will form a "wCBDC Architecture Community" consisting of local and multinational banks, key digital asset industry players, and technology companies. https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/03/20240307-5/
BSP wholesale CBDC pilot to be completed by end 2024
Bangko Sentral ng Pilipinas (BSP) will reportedly complete its wholesale central bank digital currency (CBDC) pilot that launched in September 2023, by the end of 2024. The BSP is testing out basic funds transfers between six participating banks, with plans to later test are higher value-adding services like securities settlement.
RBI in no hurry to launch central bank digital currency
The Reserve Bank of India (RBI) has reportedly set no specific timeline for the 'full-fledged' launch of its e-rupee central bank digital currency (CBDC). The RBI started its wholesale CBDC pilot on November 1, 2022 and the retail CBDC pilot on December 1, 2022. There are currently about 4.3 million retail users of CBDC, new challenges and issues keep cropping up about the e-rupee's technology, as well as questions around the safety features and speed of transactions.
Kyrgyzstan central bank announces CBDC vendor short list
The National Bank of the Kyrgyz Republic (NBKR) has received proposals from twelve firms to develop and test a demo version of a digital som central bank digital currency (CBDC). The NBKR will select from Axellect, DCM, EMTECH, FIS, G+D Filia GmbH, Knox Networks, MONTRAN,Nahmii, Ltd, R3 Corda, SICPA/Nabatech, TCS Quartz, and Xiamen Strait Chain Technology. The selection criteria will focus on blockchain platform technology.
Governor of the Bank of Jamaica (BOJ) Richard Byles reportedly says the central bank is "determined" to make its Jam-Dex central bank digital currency (CBDC) work despite the slow take-up. The main reason is merchant adoption, with most of the larger merchants preferring that Jam-Dex payments go through a single point-of-sale machine, so BOJ is testing a solution that uses a dynamic quick response (QR) code. Also, only one bank is able to facilitate Jam-Dex transactions, although three more are expected to step up to the plate soon.
US Republican Senators file bill to ban Fed from issuing a digital dollar
U.S. Republican Party Senators Ted Cruz, Bill Hagerty, Rick Scott, Ted Budd, and Mike Braun, re-introduced the CBDC Anti-Surveillance State Act, that would prohibit the Federal Reserve from issuing a retail central bank digital currency (CBDC). The original version was filed by Republican House Representative Tom Emmer in September 2023. Former President Donald Trump, the front-runner in the Republican leadership race, has also promised to ban the creation of a CBDC if elected President. https://www.hagerty.senate.gov/wp-content/uploads/2024/02/cbdc_anti-surveil-_lance_state_act.pdf
The U.S. Federal Reserve (Fed) published a paper that explored the March 2023 USDC stablecoin depeg as a means to learn more about the complexities of stablecoin markets, with an emphasis on distinguishing between primary and secondary market dynamics during a stablecoin crisis. In the end, the analysis, which compared the market dynamics of the four largest stablecoins by market capitalization (USDT, USDC, BUSD and DAI), found more questions than answers, and called for additional theoretical and empirical investigation.
